You’ll Never Believe What Taiwan Semiconductor’s CEO Just Said About Artificial Intelligence (AI) Chip Demand

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Taiwan Semiconductor Manufacturing (NYSE: TSM) is the world’s largest chip foundry company. Without it, much of the technology we see today wouldn’t exist in the same capacity, and it could be argued that it is one of the world’s most important companies.

Recently, the company reported outstanding quarterly earnings, and the CEO said something unbelievable in the quarterly conference call. The results in one sector of the chip market have blown away expectations, and investors should consider loading up on more Taiwan Semi stock, if they haven’t already.

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Taiwan Semiconductor’s products are used in all sorts of devices, but most notably, some of its biggest clients are Apple and Nvidia, the world’s two largest companies. These two would grind to a halt without TSMC’s chips, which shows how critical TSMC is. Both of these companies are participating in the artificial intelligence (AI) arms race, which should boost TSMC’s sales in the AI chip space.

Taiwan Semiconductor saw this trend coming from a ways out and projected that AI chips would grow at a 50% compound annual rate for five years, when they would then make up around a low-teens percentage of revenue. Considering that AI chips made up about 6% of total revenue at that time, it seemed like an ambitious projection when they announced that guidance in Q2 2023.

However, we now know that management wasn’t ambitious enough. In its Q3 2024 conference call, CEO C.C. Wei had this to say about AI chip demand:

We now forecast the revenue contribution from several AI processors to more than triple this year and account for mid-teens percentage of our total revenue in 2024, supported by our technology leadership and broader customer base, we are well-positioned to capture the industry’s growth opportunities.

So, just a year-and-a-half after it gave the projection that AI chips would make up a “low-teens percentage” in five years, it is on track to make up a “mid-teens percentage.” This shows the incredible demand for AI chips that go into graphics processing units (GPUs), AI accelerators (custom chips that the big tech companies utilize for themselves), and CPUs.

Thanks to AI revenue tripling, management raised its full-year revenue forecast to rise by 30% year over year. AI chips are clearly having a huge effect on Taiwan Semiconductor, and it’s well-positioned to take advantage, but does that make the stock a buy right now?

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